Real Estate Investing might sound difficult, but it’s actually simple. Whether you are new or someone with even a little bit of experience, there are easy ways to get started.
Let’s dive into five simple ways to invest in real estate in November 2024 and help you grow your money and secure your future!
Table of Content
- What is Real Estate Investing?
- Rental Properties
- Investment Groups (REIGs)
- House Flipping
- REITs
- Online Platforms
- Conclusion
- FAQs
What is Real Estate Investing?
What makes a real estate investment stand out? A strong return on investment and a high chance of success are characteristics of any wise investment. Thinking about diving into real estate? Have you considered the potential of rental properties or the fast-paced world of house flipping? The comparatively low initial investment required for real estate investing, when compared to many other asset classes, is one of its benefits.
A home mortgage typically requires a 20% to 25% down payment, but in some cases, a 5% down payment is sufficient to purchase an entire property for rental purposes. That’s great for those with DIY skills and a lot of free time, but it’s just one of several ways to make money in real estate without making a large upfront investment.
Key Takeaways
- Buying and managing rental property is an option for investors who have the time and skills to manage the property themselves.
- “Flippers” find properties with low value and try to sell them quickly for a profit.
- REIGs are a method of passively investing in real estate.
- REITs, like stocks, pay dividends and are traded on exchanges.
- Platforms for investing in real estate online provide a variety of options for a comparatively small investment.
1. Rental Properties
Owning rental properties is a good option for people with do-it-yourself (DIY) skills, the patience to manage tenants, and the time to do the job right. For those of you with a knack for DIY projects and a bit of free time, owning rental properties could be your ticket to a steady income.
Even though financing is available with a comparatively small down payment, it does require a significant amount of cash on hand to cover periods when the property is empty or the tenants fail to pay their rent.
Positively, if the property begins to generate income, it can be used as leverage to buy additional real estate. With time, the investor may acquire many revenue streams from several properties, providing fresh revenue to offset unexpected costs and losses.
Rental Property Investing
Pros
- Gives consistent income and room for growth
- This can be increased by using leverage
- A lot of costs are deductible from taxes.
Cons
- Tenant management can be laborious.
- Unexpected expenses can reduce revenue.
- Unpredictable job openings may lower revenue.
According to data from the U.S. Census Bureau, the sales prices of new homes, which are a good proxy for real estate values, increased steadily between the 1960s and 2007 before declining during the financial crisis. Sales prices then started to rise again, reaching even pre-crisis levels.
The average price of a home sold in the United States by the end of 2023 was $498,300, slightly lower than record highs set earlier in the year.
2. Real Estate Investment Groups (REIGs)
Real estate investment groups (REIGs) are best for people with some capital who want to own rental property without having to manage it themselves.
REIGs are pools of money from multiple investors, similar to a small mutual fund, that invests in rental properties. In a typical real estate investment group, a company purchases or constructs a series of apartment buildings or condo buildings.
One investor may own one or more self-contained apartment buildings, but all of the properties are managed collectively by the company running the investment group. This includes maintenance, tenant interviews, and advertising for available units.
In exchange for handling these responsibilities, this company gets a percentage of the monthly rent.
A typical lease for a real estate investment group is in the investor’s name, and each unit pools a portion of the rent to cover vacancies. This implies that even if your unit is empty, you will still get paid. Provided that the rate of vacancy in the combined units doesn’t increase excessively, the expenses should be covered.
REIG Investing
Pros
- less involved than being an owner of the property
- Offers income and appreciation.
Cons
- Risks associated with vacancies
- fees that resemble those incurred with mutual funds
- Easily influenced by dishonest managers
3. House Flipping
House flipping is for people who have extensive experience in marketing, renovation, and real estate valuation.
This is the so-called “wild side” of real estate investing. Just as day trading is not the same as buy-and-hold investing, neither are real estate flippers and buy-and-rent landlords.
The goal of real estate flippers is typically to sell the cheap properties they purchase in less than six months for a profit.
Some real estate investors do not make improvements to their properties. They choose homes that, in their opinion, have the inherent worth required to generate a profit without being altered.
Flippers often don’t keep enough uncommitted cash on hand to pay the mortgage on a property over time, so if they are unable to quickly unload a property, they may find themselves in trouble. Losses may snowball as a result of this.
Another type of flipper is one who purchases properties at a reasonable price and increases their value through renovations. Investors may only be able to take on one or two properties at a time because this is a longer-term investment.
House Flipping
Pros
- capital is committed for a brief duration
- able to provide substantial returns
Cons
- Deep market knowledge is necessary.
- Warm markets can suddenly cool
4. Real Estate Investment Trusts (REITs)
A real estate investment trust (REIT) is ideal for investors who want to diversify their portfolios while avoiding a traditional real estate transaction.
A corporation (or trust) that uses investor funds to buy and manage income properties is called a Real Estate Investment Trust (REIT). On the main exchanges, REITs are bought and sold just like any other stock.
To keep its REIT status, a company must distribute 90% of its taxable profits as dividends. In contrast to other businesses that are taxed on profits and then choose whether and how to distribute after-tax profits as dividends, REITs are able to avoid paying corporate income tax by doing this.
REITs are a wise choice for investors looking for consistent income, much like stocks that pay dividends regularly.
REITs can provide investors with access to nonresidential investments such as malls or office buildings that would otherwise be prohibitively expensive for individual investors to purchase.
Furthermore, because REITs are exchange-traded trusts, some (but not all) of them are extremely liquid. REITs are essentially a formalized version of a real estate investment group.
When considering REITs, investors should distinguish between equity REITs, which own buildings, and mortgage REITs, which finance real estate and may invest in mortgage-backed securities (MBS).
They offer exposure to real estate, but it’s not the same exposure. A mortgage REIT concentrates on the income from real estate mortgage financing, whereas an equity REIT owns real estate.
Investing in REITs
Pros
- Divide profits to shareholders.
- Core holdings are typically long-term, revenue-generating investments.
- A lot of people trade on exchanges.
Cons
- Risk of a real estate market decline.
- Risk to liquidity if the REIT trades carefully or is not listed on a public exchange
5. Online Real Estate Platforms
Real estate investing platforms are for people who want to join others in investing in a large commercial or residential property. The investment is made through online real estate platforms, also referred to as real estate crowdfunding.
The best real estate crowdfunding platforms combine the resources of investors looking for opportunities with those trying to find financial support for real estate projects. This way, the investor can diversify into real estate without having to commit a significant amount of money.
Investing in Real Estate Platforms
Pros
- Able to put money into a portfolio of projects or just one project
- Able to expand geographically
Cons
- Usually illiquid during lockup times
- Profits are decreased by management fees.
Conclusion
By paying a relatively small portion of a property’s total value upfront, real estate investors can establish a strong investment program, regardless of whether they plan to use their properties to generate rental income or wait for the ideal selling opportunity to present itself.
Real estate investing carries its share of risks and rewards, just like any other investment, and markets can rise or fall.
Ready to start your real estate journey? Whether you’re observing a rental property or considering REITs, now’s the time to make your move.
Why Should My Portfolio Include Real Estate?
Many experts believe that real estate is a unique asset class and that it should be included in a well-diversified portfolio. This is because real estate rarely has a strong correlation with commodities, stocks, or bonds.
Aside from the possibility of capital gains, real estate investments can also generate income in the form of rent or mortgage payments.
What Is Direct vs. Indirect Real Estate Investing?
Investing in real estate directly entails property ownership and management. Investing in a fund that is used to acquire and oversee properties is known as indirect real estate investing. REITs and real estate crowdfunding are two examples.
Is Real Estate Crowdfunding Risky?
Crowdfunding has the potential to be riskier than other real estate investing strategies. Some of the available projects could appear on crowdfunding platforms as a result of their inability to secure funding through conventional channels. Furthermore, a lot of real estate crowdfunding platforms lock up investors’ funds for many years, which makes it an illiquid investment.
Still, according to FinanceProsper research, the best platforms have annualized returns of between 2% and 20%.
